Yes, We Do Have a Debt Problem

July 24, 2013

In mid-May, the Congressional Budget Office (CBO) revised its previous estimate of the federal government's 2013 deficit downward by 24 percent. The fiscal year (which ends on September 30) will feature red ink of merely $642 billion, down from the $1 trillion-plus of the previous four years, according to the CBO. For many Democrats, this proved what they knew all along: The national debt is not a clear and present threat, says Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University.

But after years of bipartisan overspending, public debt today (that's the money that the federal government owes to domestic and foreign investors) is almost 90 percent higher than at the onset of the financial crisis in 2008.

Public debt is now 75.1 percent of gross domestic product (GDP), the highest level since 1950, and it is projected to reach 76.2 percent next year.

Assuming current laws, the CBO projects that the debt is scheduled to grow to $19.07 trillion by 2023, or 73.6 percent of projected GDP. To put that number in perspective, in its February report the CBO reminded policymakers that "as recently as the end of 2007, federal debt equaled just 36 percent of GDP."

If Congress changes current law and reverses the March 1 spending cuts forced through sequestration, the projections get more dire, with debt held by the public rising to 83 percent of GDP, the CBO projects.

And those numbers don't tell the whole story: Add in the debt that the government owes to other accounts (such as Social Security) and gross federal debt right now totals $17 trillion, or 106 percent of GDP.

According to the Financial Statement of the United States, which looks at the government's net financial position, as of 2012 the American people have been promised about $55 trillion worth of future benefits (through Social Security, Medicare and other government programs) that the federal government does not have the money to pay.

Congress should circumvent these scenarios by acting now to cut spending and reduce future entitlement obligations. In particular, lawmakers need to reform Social Security, Medicare and Medicaid, which are the main drivers of the future spending explosion. No level of taxes can address the phenomenal fiscal imbalance that our country is facing now and into the future. Higher taxes would merely act as a drag on growth, exacerbating the debt and deficit problem. History will not judge the debt-denialists kindly.